This capstone provides an opportunity to get some hands-on experience applying corporate finance theory and models to real firms. In the process, participants will get a chance to prepare an in-depth analysis of a company by:
Evaluating the risk profile of a firm and examining the sources of risk and risk management policies.
Analyzing its capital structure and deciding whether the firm is under- or over-leveraged.
Valuing the firm.
Restructuring the firm and revaluing it.
How is the project structured?
This is an individual project. You should each turn in a report 10-20 pages in length (including tables), adhering to APA formatting standards. All tables should be moved to the Appendix. The appropriate tables should be referenced in the paper.
Each week you will submit a section of the project. Your weekly capstone milestones are only a small part of your capstone grade. This provides you with the opportunity to have me review and comment on your weekly submissions, then using my feedback you can modify your milestones before re-submitting as your final capstone assignment in M6. Most of your points for the capstone are earned with the M6 submission.
What company should I pick?
The company may be large or small, domestic or international, manufacturing or service. A public company with stock trading on an exchange is preferable.
Choose one for which plenty of information is publicly available.
Examples: Ford; Sprint; Viacom; Microsoft; Berkshire Hathaway; EDS; Volkswagen; Unilever; Sony.
Perhaps an interesting “story” can be your guide. You’ll find stories daily at The Motley Fool, among other places.
How will the project be graded?
Please click here for the grading rubric.
Module 1 – Corporate Governance
Describe the primary business of the company, including its products, customers, and competitors.
Give the company revenue, net income, and total assets for its last fiscal year.
Provide the name and background of the Chief Executive Officer (CEO).
How does this firm view its social obligations and manage its image in society?
Module 2 – Ratio Analysis
Undertake an in-depth ratio analysis of your company.
Module 3 – Performance and Growth
What has been the performance of the company stock compared with a key competitor and with the S&P 500?
How much of the performance can be attributed to management and how much is due to market conditions?
Module 4 – Risk & Capital Structure
Describe the risk profile of the business.
Determine the company beta and explain its meaning.
Compare the debt ratio of the company against the competitor.
Describe the risks and advantages of the company’s debt level and indicate whether you believe it could/should be higher or lower.
Module 5 – Cost of Capital
Estimate the approximate yield to maturity of company debt and the after-tax cost of debt.
Determine the approximate cost (required rate of return) of equity using the Capital Asset Pricing Model.
Determine the market values of the company debt, equity, and assets.
Calculate the weighted average cost of capital.
Explain the significance of the company’s WACC to its management.
Module 6 – Restructuring
Include with your final capstone submission – NOT a separate assignment
Is the firm a possible target for a takeover or shareholder activism? Is it facing some financial stress?
Is a change in the business mix warranted? What acquisitions or divestitures do you recommend? How?
Can needed changes be made without a change in management or control? How would these be affected?
Your final report should conform to APA formatting standards. Review the guidelines for creating business reports that you learned in BAC 300 and the Cleary Style Manual document. Your final report should contain the following:
Title page with company name, your name, instructor’s name, course number and name (FIN 400: Financial Management), and date.
Executive Summary (one page, single-spaced synopsis).
Include the following sections:
I. Corporate Governance Analysis
II. Ratio Analysis
III. Performance and Growth
IV. Risk and Capital Structure
V. Cost of Capital
If you were hired to enhance value at this firm, what path would you choose?
Please include all tables, charts, and calculations in the Appendix. Reference the tables, charts, and calculations in your text in appropriate places.